Friday 25 December 2009

Some little financial Christmas gifts

My company closed down for Christmas Eve, giving everyone an extra day of paid leave. They're pretty generous that way. On the other hand, they gave a minimal 2% "cost of living" pay rise last year to most employees (when the official CPI in Australia was around 3% and the average wage increased by more than 4%) and this year they gave no "across the board" rise at all, citing the challenging economic climate and uncertain profit outlook for 2009. As I anticipated, they decided to give a modest bonus ($250) to all employees just before Christmas. They normally don't give bonuses to non-executive staff, and a one-off bonus means that they have locked in the wage savings gained from keeping the general salary bill increase to just 2% over the past two years.

Aside from the $250 bonus at work, I also received a 1-for-12 renounceable rights issue from Woodside petroleum. As the 19 new WPL shares I'm entitled to are priced at $42.10 and WPL is currently trading at $47.50, taking up my entitlement will result in a net gain of around $100 (assuming the share price doesn't drop too much due to dilution when the shares trade ex-entitlement).

Overall though, the "Santa Claus" rally in the share market in the past week was a bigger boost to my net worth than these little Christmas presents.

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Tuesday 22 December 2009

Am I underpaid, or is he overpaid?

Now, I'm not saying that David Tepper is being overpaid (well, actually I am), but he was paid my annual salary for every 6 minutes he worked in 2009! And although a 120 percent rate of return in excellent, a performance fee of 30% seems a bit rich -- especially since he won't be handing any of it back in bad years (like 2008, when his fund earned -25%). Overall, such performance fee structures seem designed mainly to transfer as much of the fund investors wealth into the fund managers pockets as quickly as possible.

For example, if such a fund started out with a value of $100b and made 120% in one year (and was paid a 5% base fee plus a 30% performance fee) and then -25% return the next (and was 'only' paid a typical minimum 5% base fee), the investors would end up with a return of around $34b over two years, while the fund managers would have been paid $40b in fees...

The $30 million pounds paid to Crispin Odey, a British hedge fund manager who made similar bets in 2009, seems a more reasonable payment for exceptional hedge fund management.

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Monday 21 December 2009

First Timbercorp Distribution Received

I just noticed that the liquidators of Timbercorp had deposited $4,803 into my credit union account on Friday. Looking at the KordaMentha (liquidators) website I learned that this was payment of the 1st distribution ($1,601 per Lot) to be made in relation to the sale proceeds received by KordaMentha for the Grower Investors' trees (sold on 30 September). A final distribution (expected to be $543 per Lot) is due to be made in the first quarter of 2010. This means that the total amount of income generated by my Timbercorp investment will be around $6,432. My total investment was an initial up-front payment of around $10,500 in 1999 plus approx. $9,000 spent on annual insurance, land rental and management fees since 1999 -- adding up to around $19,500 (not adjusted for inflation). The distribution is therefore around 35c in the dollar, or around 10c in the dollar if you adjust for inflation and opportunity cost. I had hoped the sale proceeds would result in a larger payout to the 1999 Investors, as the amount was supposed to be proportional to the value (age) of the trees), but a plot of total distribution vs. year of investment shows that the payout amount doesn't correlate to the age of the trees as much as I had expected (as usual I seemed to have managed to pick the worst possible year to invest in a 'dud' investment).

While the basic idea of diversifying my investment portfolio into agribusiness investments was sound, it turned out that this investment was driven mostly by the up-front tax deduction available to investors, and suffered from huge management and promotion costs (IE. fees and bonuses paid to financial advisers) that were more in line with life insurance products than your typical investment fund.

One consolation is that I wouldn't have done especially well investing in a listed agribusiness company such as Wesfarmers, and would have done almost as badly if I'd put my money into a supposedly 'safe' agribusiness such as the Australian Wheat Board. And I could have lost even more if I'd invested the money in a company in 1999 (unless I'd picked Google or one of the other exceptions).

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Friday 18 December 2009

Is giving billions to developing countries the best way to minimise climate change?

One of the sticking points at the Copenhagen climate summit is how much money the rich/developed countries will provide to the poor/developing countries to help them 'adapt' to climate change. Figures of $10b and now $100b are being thrown around, and I saw one of the representatives of the developing countries state that $400b of aid would be required, and fast. I just wonder how effectively that money will be spent by developing countries -- the track record of aid spending by third world countries has been pretty bad, with a large percentage of funds being siphoned off and promoting corruption rather than development.

I have a sneaking suspicion that this 'aid' is really a form of hush money, paid by the rich countries to the poor in order to minimise the impact of CO2 reduction on western living standards, and not the best way to actually minimise the concentration of CO2 in the atmosphere.

And if the aid money actually ends up increasing the rate of development and improvement of living standards in the developing nations, it could actually increase the rate at which global CO2 emissions are rising, rather than reducing it.

Perhaps the money would be more effectively spent on fast-tracking research into more efficient photovoltaic cells, the ITER fusion power generation research facility, providing birth control options to those who want them in the developing countries, building more nuclear power stations to provide base power generation capacity in western countries in place of coal-fired power stations, and so on. But there seem to a great many vested interests and ulterior motives at work at the global climate change summit, and within the 'climate change movement' in general.

It will be interesting to watch how this saga develops over the next few decades, but I don't think we're heading towards a happy ending. The world of the future may end up resembling the movie 'Soylent Green' (or possibly 'Salute of the Jugger').

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Thursday 17 December 2009

Tiger Woods to be skinned alive

The latest rumour circulating about Tiger Woods infidelities is that his wife has had enough and decided to get a divorce. I suspect that while she may have known about (and tolerated) one or two 'flings', she isn't prepared to put up with a guy who has racked up more than a dozen affairs at a rate of more than two for each year of marriage. Apparently Elin Nordegren has a generous pre-nuptial agreement that would probably she her getting around $300 million in a divorce settlement, plus custody of the children and child support. That would make it the most expensive celebrity divorce to date - far exceeding the previous record Michael Jordan holds with his wife, Juanita, receiving an estimated $150 million settlement. In third place would then be Greg Norman with his $128 million payout to his wife of three decades, Laura Andrassy.

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Sunday 13 December 2009

Sydney property set to rise, or fall, in 2010

I don't know how Sydney property prices will move next year. And even if I did, there is so much variation between suburbs and from house to house as to make the movement in the 'average' house price nothing more than an academic interest to anyone who has money tied up in one or more houses. However, some 'expert' opinions published in the Sydney Morning Herald last week piqued my interest:

Opinion 'A': House price rises to extend into 2010: APM

"Property owners will continue to see their investment grow in the new year, with house prices already exceeding pre-global financial crisis levels nationally by nearly three per cent, and growth is expected to continue well into 2010," APM said in a statement issued on Dec 11.

Opinion 'B': House prices tipped to slide

The value of Australian homes will drop 14 per cent by the end of 2010, pushed down by a falling employment levels, according to an analysis done by JPMorgan in June. However, at that time the bank was expecting the jobless rate, sitting at 5.4 per cent at that time, to hit 9 per cent in that time. Given the latest monthly unemployment figures showed a slight decrease in the jobless rate and a pick-up in the creation of full-time jobs, it seems more likely that the unemployment rate will peak at less than 7% in this economic cycle. Anyhow, historic data doesn't support the view that house prices always fall when unemployment rises - after the last technical recession (1990/91), unemployment peaked at 10.9% in December 1992, and was over 10% for the whole of 1992 and 1993.
But house prices nationally rose by +3.3% with performance varying across capital cities. In NSW unemployment hit 11%, but Sydney house prices rose by +2.3%. In Melbourne house prices fell by -1.0% and in Brisbane they rose by over 8%.

So, depending on who you believe, Sydney house prices are set to either go up or down next year, or maybe end up unchanged. Glad that's cleared up. ;)

All I know is that the average house price in the two suburbs where we own property have gone up more than 5% in the past six months, but seem to be levelling off in recent months. I'm pencilling in a rise of 2%-7% during 2010 for our property portfolio. But it hardly matters since we don't expect to sell our rental property for at least 3 or 4 years, and we'll probably not sell our current home until we've retired in 20 or more years time.

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Wednesday 9 December 2009

Mini Budget for 2010

I completed my online enrolment for the MAstron course yesterday, so I now know exactly what the course fees will be ($850 per semester, due in Mar and Aug) for 2010. I won't do a full budget for 2010 as I expect my overall income and expenses will be similar to the past couple of years, and most of my income and expenses are ticking over nicely on 'autopilot'. However, there is some room to make savings in some areas (such as grocery shopping) and I need to reign in my impulse/discretionary spending and also budget for my uni expenses. I spent an hour checking through my monthly credit card statements for the past 12 months and came up with the following 'mini budget' (credit card charges only) for next year:
 (all amounts are monthly)
Item ............ budget '10... prev 12 mo avg .. comments
Petrol: ......... __$140.00 ... __$115.40 ....... The last 6 months have averaged closer to $140
Shopping:........ $1,400.00 ... $1,366.78 ....... I intent to trim this expenditure as much as possible
Medical:......... __$400.00 ... __$406.76 ....... If there are only routine expenses this may be 50% lower
Rates/Utilities:. __$220.00 ... __$219.18 ....... I intend to offset any price rises with reduced water/elec use
Books:........... ___$30.00 ... ___$28.07 ....... A small item that we seem to end up spending on each month
Uni study:....... __$200.00 ... ____$5.42 ....... Only had application expenses this year. Budget for fees and textbooks
Computer:........ ___$65.00 ... ___$65.76 ....... Tends to be large, irregular expenses. Need to watch this doesn't blow out.
Gifts:........... ___$25.00 ... ___$25.30 .......
Income insurance: ___$75.00 ... ___$70.46 ....... Monthly charge is currently $75.71
Hobbies:......... __$150.00 ... __$169.68 ....... Should come in under budget if I avoid impulse purchases
Other:........... __$150.00 ... $1,319.39 ....... See below

Annual total:.... $34260.00 ... $45506.26

This year the 'other' category included irregular household expenses such as car servicing and registration etc. as well as miscellaneous 'big ticket' items such as the new pool fencing, a garden play set, and 200 sq metres of stone cladding (bought because it was on clearance sale, and destined for the holiday house I intend to building on my parent's lakeside farm in the next couple of years). For 2010 I'm only budgeting for an 'other' amount that covers the essentials (car rego & insurance etc) and assuming I won't make any unplanned purchases.

Although this budget doesn't include any of my regular expenses that are not charged to my credit card - such as home loan repayments, investment loan interest charges, retirement savings etc. - those items don't vary much, are out of my control, and are covered by the balance of my salary income, rent and dividend income. The variable (and mostly discretionary) items all get charged to my credit card (and paid off in full each month), so, provided I stick to my CC mini budget, my overall finances should remain on track.

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Tuesday 1 December 2009

Budgeting for the new year

Yesterday I received the official letter from JCU offering me a place in the MAstron course next year, and today I sent in the acceptance form and completed the eCAF (electronic Commonwealth Assistance Form) which is required prior to enrollment.

The JCU website indicates that the two courses I'll enrol in for 2010 are each 0.25 EFTSL (equivalent full-time study load) and are both "Band 4" (which determines how much Commonwealth sponsored students have to pay). However I'm still not 100% certain what I'll have to pay in 2010 for these courses, as the JCU site only lists the cost per EFTSL for Bands 1, 2, 3 and for those subjects classed as 'national priority' subjects for 2010 (science, math and engineering). I strongly suspect (since the MAstron course is run by the Dept of Engineering and Science) that these Band 4 subjects are included the 'national priorty' category, which means that the lowest cost per EFTSL will be applied. I intend to pay the course fees in full before the 'census date', which will mean I get an additional 20% discount. I think that the subject fees will end up around $850 each.

This month I'll prepare a detailed household budget for 2010 that includes paying the course fees in full each term, and I'd like to start tracking my financial data again in Quicken from the start of next year - my 'one off' expenses have been excessive for the past few months, and need to be brought under control.

I'll also need to carefully budget my time next year so I can get good results in my uni subjects - my previous study method of leaving assignments until they were almost due and only studying for exams the night before produced 'mixed' results. I've been browsing through the Study Hacks blog and there are a few tips that I'll give a go. So, this week I'm studying how to study ;)

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Net Worth Update: November 2009

November saw another significant increase in my net worth, although the 'Dubai announcement' adversely affected the valuations of my stock portfolio and retirement account balance on the last business day. This month the strength in the Sydney property market was augmented by similar gains in the stock market - by 30 November my net worth had risen to $830,832 (up $42,891, or 5.44%). That's still about 30% off my previous 2007 peak in NW.

My retirement account (SMSF) gained $7,598 (+2.46%) to $316,835, recovering most of the last month's loss. The recovery in the stock market was amplified by our modest amount of gearing (8 ASX200 index CFDs, code: IQ). A couple of month's worth of employer superannuation contributions were deposited into our SMSF bank account during November (around $4,000), so the result wasn't as good as it appears on the surface. I expect the December quarter employer contributions will not be deposited until sometime during January (around $6,000). Last Friday I transferred another $5,000 of our cash balance into our Vanguard "High Growth" index fund investment - hopefully the timing of this investment was just right to benefit from the one day dip in stock market indices.

The estimated valuations for my half of our real estate assets (house and investment property) were up substantially this month, by $20,365 (+0.2.53%) to $825,758. The Sydney real estate market still appears to be in an up-trend at the moment, but the winding up of Federal boost to First Home Owners grant and continued monthly rises in official interest rates will probably limit price increases until unemployement has clearly peaked. It appears that first home buyers have disappeared from the market in the past couple of months, which will probably drive down rental vacancy rates during 2010. A recent BIS forecast predicted a 21% rise in rents in Sydney over the next three years.

My stock portfolio gained $14,888 to $52,702 net equity during November (due to the high gearing levels - stock portfolio value is currently around $510,000 with $460,000 of margin and portfolio loans outstanding). The market (ASX200) appears to be consolidating around the 4700 level and I don't expect it to move much higher until company profits see further benefits from the Australian economic recovery in 2010.

I again didn't have any spare cash flow to pay off some mortgage or margin loan debt principal this month, as I continued spending on "home improvement" projects ($750 for a new sand filter for our swimming pool). Cash is likely to remain tight for the next few months as well, as I will have to pay for repairs to my digital SLR camera and the pool salt chlorinator, top-soil and turf for the new play area, and I will also have to find around $7,000 to pay for the ~270 sqm of granite wall cladding I recently bought for use on a new holiday house to be built on my parents' lakeside farm. During 2010 I'll have to finalise my requirements for the holiday house so I can get an estimate of the cost (built to "lock up" stage) and possibly proceed with getting plans drawn up for a development application to be submitted by the end of next year. Depending on how much of the construction (using Hebel or besser blocks) we do ourselves, the basic house structure may cost around $85,000. I've yet to work out how I'll pay for it ;)

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